Facing mountains of debt and multiple credit cards can be overwhelming. When you’re barely getting by just making minimum payments, it’s hard to see the light at the end of the tunnel.
So, how do you get out of debt?
Financial experts will tell you to tackle your highest interest rate cards first because they are costing you the most money. While this is true, it’s not always the best method if you want to keep the momentum going.
Because if the highest interest debts are also your highest balance, it makes it difficult to see that you are making progress at all. Many people will give up if they don’t see progress. Or in my case, I would use it as an excuse to keep spending. For example, if I’m paying $200 per month on a high balance credit card, it’s easy to just go ahead and buy something because my payment won’t change. It feels like I’m getting something for free even though I know that’s not the case at all!
This line of thinking is what prevented me from getting out of debt, and it becomes a vicious cycle that was hard to break.
This is how I paid off my credit card debt in the real world:
Tackle the small debts first!
Make minimum payments on the large balances, but put as much as you can toward the smallest balance first. The result is you can see the progress when you pay off those small cards. This progress feels good and gives you a boost of confidence that you can do this!
Once that small debt is paid off, roll that payment, plus the minimum on the next smallest debt to continue the progress. Keep moving up the chain, like a snowball building up as it rolls down a hill, so will your payment.
The traditional snowball method has you continuing this trend until all your debt is paid off. Be particularly careful not to incur any new debt or you’re defeating the purpose and making things harder on yourself.
I know in the real world, emergency expenses come up. I also know that building up an emergency savings account can be hard to do when you’re just getting by from week to week. Don’t be ashamed if you have to use a credit card for an emergency. Stick to your guns about not charging luxury items. You will make progress!
One final note, if you find yourself faltering, transfer a small amount of debt from a large balance onto one of the paid off cards. Seems counter productive, but it could buy you a little relief for one month, and give you that small balance to build your momentum back up again. That’s the trick. Keep the momentum going. Don’t get overwhelmed.
Does anyone have tips for building up an emergency savings account or paying off debt while on a tight budget? Feel free to share them here!